Car dealer Pendragon
has said that its profits for full-year 2007 will be £12m lower
than predicted, sparking a 35 per cent slide in its share
price.
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Pendragon has also lowered its profit forecast for 2008 by £18m,
the company said. It still plans to return a 2p dividend to
investors for 2007.
The profit warning is Pendragon’s second of the year, after profit
expectations were reduced by £20m in June. Chief executive Trevor
Finn blamed weaker residual values in the used car market, brought
about by lower new car prices: “Whilst [lower prices for new cars
have] been positive on new car volumes, [they have] had a negative
effect on used car margins as the deflationary effect on new car
prices also feeds into used car prices.
“We have been successful in maintaining activity levels in
used car sales although this has not compensated for the loss of
margin.”
Finn said that better margins on used car sales over recent
months had not been enough to offset profits forfeited earlier in
the year. In addition, he pointed to the bushfires in California
which have adversely affected Pendragon’s US operations, along with
general economic uncertainties. The troubles in the US are believed
to be responsible for one-third of 2007’s £12m profit slide.
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By GlobalDataMembers of the executive board of Pendragon have bought extra
shares in the company after the price crashed. Finn bought 1m
shares at 35.5p, chairman Nigel Rudd bought 1m shares at 35.25p,
while three other board members bought between 40,000 and 280,000
shares apiece.
In 2006 Pendragon made pre-tax profits of £96.5m on turnover
of £5.1bn. This year it expects to make profits of around £33m,
after announcing profits for the six months to June 30 2007 of
£33.5m – meaning investors should not expect the company to make
any more profit this year.
With its share price currently sticking below 40p, Pendragon has a
market capitalisation of around £250m, a steep fall from the
year-ago figure of over £700m. Its high-profile acquisitions of the
CD Bramall and Reg Vardy chains in 2004 and 2006 respectively cost
the UK’s largest dealer chain a total of £680m – a sum not
reflected in its current market value.
SMMT figures show strong new car market
- New car registrations once again bettered expectations,
with volumes up 2.2 per cent compared to this time last year and
saw the eighth monthly growth of 2007. However, they are still a
long way from 2004 levels. - Over the last three and six months, the market was up 3 and 2.8
per cent respectively in 2007. Growth momentum is in line with
stronger and sustained growth currently in consumer spending, as
well as sales activity by manufacturers. However, concerns remain
how the market will fare in 2008. - The growth in private demand continues to be a welcome
surprise. Sales in diesel and alternatively fuelled vehicles
continue to grow, up 10.2 and 68.2 per cent respectively. Concerns
remain about the sustainability of sales growth in light of the
global credit crunch and cost pressures on consumers and business
alike.
Source: SMMT
